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As Normalcy Returns To Houston, City Looks To Understand Long-Term Effects

Houston Economy

All the kids are off to school and the traffic is back with a vengeance. This week, much of Houston is returning to normalcy after two weeks of uncertainty following the devastating flooding of Hurricane Harvey. As we begin to understand the long-term impacts, it is clear Houston will never be the same. 


Harvey home devastation

“The real story is the damage to the residential side,” Greater Houston Partnership Senior Vice President of Research Patrick Jankowski said. “This is a story about people who have lost everything, who can’t get to work because their car is flooded.”

CBRE estimates 100,000 multifamily units sustained damage, meaning any soft spots in the market are now gone. A small number of high-density submarkets sustained damage in as much as 30% of existing inventory, totaling approximately 22,300 occupied units and creating immediate leasing demand.

Concessions and competitive move-in specials characterizing the rental market since the start of the oil downturn are expected to quickly rescind, and renters with leases expiring in the next six months should not anticipate any type of renewal incentives, according to CBRE.

FEMA flooding damage

The majority of residential damage was single-family homes in the northeast, west and southwest of Downtown Houston — three of the nine counties comprising the 700-square-mile Greater Houston market. More than 73,000 National Flood Insurance Program claims have already been submitted, and $13.2M in advance payments have been issued.


Downtown Houston skyline

CBRE Research estimates that of the city’s 1,200-building, 214M SF total inventory, fewer than 40 buildings totaling approximately 9M SF had some level of damage.

In recent months Houston's office market has been defined by a glut of sublease space, which CBRE expects to decline. In addition to short-term leases taking sublease space, some direct tenants previously marketing sublease space have removed their sublease availabilities from the market. Orchestrating an office move in the next several months will be difficult, and office build-outs of future space will face construction delays caused by a shortage of materials and construction workers, causing many companies to rethink their move-out.


Flooding in The Heights

Houston’s importance to supply chains means the impact of the historic rainfall will be felt nationally. The Port of Houston — the largest U.S. port in foreign tonnage and home to the nation’s largest petrochemical complex — closed for four and a half days after the hurricane, leading to shortages and delays. Nationally, consumers will see an increase in gas prices of about $0.08 to $0.10 for the next several months, according to CBRE's report on Harvey.

The majority of Houston’s industrial product weathered the storm with no major structural damage, which is good news for a sector seeing increased demand. Several national building supply companies are securing additional space for the extensive $100B+ rebuilding effort that will occur over the next year, CBRE estimates. A spike in requirements ranging from 20K to 500K SF is expected to put downward pressure on industrial vacancy rates in the near term, driven by building suppliers, charities and distributors of consumer goods.


Flooding in The Heights

Damage to retail properties was mainly limited to neighborhood and strip centers in the hardest-hit areas, such as the suburban and mainly single-family residential neighborhood of Kingwood to the northeast, Cypress in the northwest and West Houston.

Jankowski predicts local retail sales from retail will increase, especially for durable goods such as automotive, home improvement, furniture and appliances, as Houstonians begin to rebuild their homes.



Area hotels have seen a huge boost. FEMA is already housing 53,000 people in government-funded hotel rooms. Although initial reports are of relatively few closures among Houston’s 868 hotels totaling 85,615 rooms, some properties that remained open suffered flooding and/or reduced services.

Based on data from similar storms, CBRE predicts that if there is no significant increase in room rates and no major decline in availability, the hotels in the five major Texas cities could generate an additional 3.4 million room nights of demand and roughly $430M in additional revenue.

Do not expect more rooms anytime soon either, as hotels in Houston close for repairs and construction supplies become scarce, limiting the feasibility of adding new supply.


Greater Houston Partnership's Patrick Jankowski

Harvey's toll has primarily been on people, not the economy. Jankowski said one of the biggest impacts for businesses will be in lost productivity, as employees are focused on their personal losses. Splitting time between work and the details of getting their damaged home sorted will be a challenge for many. But Jankowski said employers are understanding and many are organizing relief efforts for their employees who were impacted.

Harvey is both a literal and figurative high-water mark for the Houston area. Going forward, it will color every conversation, from office leasing to infrastructure development. As Houstonians deal with the fallout, extra attention will be given to flood control and water drainage.